Abstract
This article investigates the evolution of the gap between Italian regions and Italy as a whole during the period of 1980 to 2007. We tested for the presence of the stochastic and β-convergence hypotheses using different time series approaches. The former was studied, first, for the entire sample period and then, with an exogenous instantaneous break in the series. The presence of β-convergence, instead, was estimated considering a known and an unknown trend break date model. Our results show that most of the regions do not converge in an ‘actual’ way, since they do not present a stochastic and β-convergence simultaneously.
Notes
1 We considered 1992 as a break year in the regressions since in this year, Italy abandoned the European Monetary System (EMS) and the Italian currency began to follow a flexible exchange rate regime with considerable effects on competitiveness and hence on international trade. Besides, in this year, the extraordinary subsidies to the southern Italian regions were suspended.
2 The null hypothesis of the KPSS test is the trend stationarity against the unit root alternative.
3 Too many lags may reduce the power of the tests, while too few lags influence the size of them (Campbell and Perron, Citation1991).
4 ty and tz are the t-statistics for testing μi = 0 and βi = 0, respectively, in regressions (8) and (9).
5 Critical values for both the modified statistics are tabulated by Vogelsang (Citation1997).
6 Vogelsang (Citation1998) recommended that the polynomial order should be nine because for greater orders, the increase in power of the t-PSt test is paltry.